“I don’t have that much. All I really need is just a simple will.” Most estate planning attorneys often hear this phrase during their first meeting with a client. However, there are different kinds of simple. A good estate planning should address who is to receive the property, how to devise that property in the most efficient way, and address certain contingent possibilities. While the wish to keep things as simple as possible is understandable (especially if the legal budget is limited), it is not always possible to accomplish a “simple” estate plan with a short simple document. Many simple estates can create a nightmare for you and your heirs at some point in the future. Such complications may include:
Probate – Probate is the court process whereby property of the deceased person is transferred after death to individuals named in a will (or pursuant to the law if there is no will). Probate can be expensive, time consuming, overwhelming for the beneficiaries, and all information becomes public records. Probate is often viewed as something to be avoided in an estate plan. A “simple” will does not avoid the probate process. A revocable living trust, on the other hand, is a great alternative that allows your estate to be managed more efficiently, at a lower cost and with more privacy than probating a will. A revocable trust can be more expensive to establish, but will avoid a complex probate proceeding. Moreover, if the client owns real estate in several states, there is a possibility that separate probates may be necessary in each state. Real property transferred to a revocable trust avoids probate regardless of the location of the real property.
Minor Children or Grandchildren – If you have minor children, you may need to consider who should be in charge of the property passing to such minor child. If both parents pass away, and the minor child does not have a trust set up through either parent’s estate planning documents, the child’s inheritance will be subject to a court process known as guardianship until the child turns 18, at which time the entire inheritance may be given to the child. Once the money is distributed to the child, there are no “checks and balances” on how the money is spent, and the money may become subject to the claims of child’s creditors or ex-spouse, if applicable. By setting up a testamentary trust for a child (meaning that it does not come into existence until you and your spouse pass away), you can create guidelines and limits on what the money can be spent (such as education, assistance with the purchase of a home, starting a business). A trust also allows you to designate the age at which the child is to receive the benefits, and even create certain several different standards, which would change as your child is getting older. An additional benefit of setting up a trust for a child is the ability to structure an inheritance trust to protect the inheritance you leave your beneficiaries from a future divorce as well as creditors. Another situation where a testamentary trust may be warranted is when a gift is made to a grandchild or another young beneficiary (whether directly or a contingent gift if one of the children predeceases the testator).
Non-Citizen Spouse – Transfers between Citizen spouses can be accomplished freely without any immediate tax consequences. However, non-citizen spouses do not have the same level of freedom. Transfers during life or at death to a Non-Citizen spouse are immediately subject to estate and gift taxes and can result in a waste of the Gift and Estate Tax exemption. This issue is often overlooked if the spouses are long-time U.S. Residents and speak fluent English. A possible solution could be to set up a trust (which must meet certain strict IRS requirements) for the benefit of non-citizen spouse to avoid immediate tax consequences.
Second Marriages – A simple will may not be a proper document for “blended” families – where one or both of the spouses have children from a prior union. Often, spouses execute simple wills leaving everything to each other, in an attempt to provide for each other’s care, and then divide the property equitably among their respective children. However, the surviving spouse may get remarried, or change their will and leave everything his or her own children. Instead, it may be advisable to leave the property for the spouse in a special marital trust, which would not be subject to divorce or death claims of a new spouse and could not be changed by the survivor.
Incapacity Planning – A significant aspect of estate planning is making sure your family has the ability to take care of you and your affairs in the event of your temporary or permanent disability (whether physical or mental). You need to have proper documents to enable someone you trust to manage your affairs and address your day-to-day needs if you become incapacitated. The important thing is to established these documents while you have capacity. After the capacity is lost, which may be unexpected, the court guardianship or conservatorship proceedings (which tend to be burdensome and expensive) may be the only options for your relatives in order to allow your family to help you.
By failing to properly plan for these contingencies, a “simple” will can instead cause many problems of logistical and financial nature. Often, an effective estate plan will utilize techniques which may have nothing to do with a will or a trust, but will provide with necessary flexibility and efficiency. An experienced estate planning attorney can provide valuable insight and offer effective mechanisms that would fulfill your wishes while providing protection and comfort for you and your loved ones for years to come.